This Chart Shows Why Americans Believe They’re Poorer

income

Economists talk about growth in terms of gross domestic product (GDP) or income. These factors are important, but they don’t mean much to average people. For example, GDP totals $19 trillion for the U.S. This is good, but doesn’t tell me anything about the average family.

Ronald Reagan summed up how Americans think about the economy in a 1980 debate with President Jimmy Carter. Reagan ended with a simple question: “Are you better off than you were four years ago?”

That’s how we think about the economy. We ask: Are we better off?

The only difference between now and 1980 is the time frame we think about. Now, we often compare our current situation with how we were nine years ago, before the Great Recession led to so much change.

A Crisis of Confidence

To answer “Are you better off than you were nine years ago?” families think about their income. But they think of how much their income grew in a very particular way.

Families understand inflation. They know they are only better off if their income grows more than inflation. Families also know that inflation in their “must pay” bills hurts the most. They fall behind even when income rises if there isn’t enough money to pay for kids’ activities or an occasional dinner out.

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In economic terms, families value gains in real disposable income. Disposable income is money left over after paying for basics like housing, food and clothing, and real income means it’s adjusted for inflation. Gains in real disposable income show how much better off we are.

The chart below shows the average annual change in real disposable income over the past nine years. This is the time frame since the Great Recession. For comparison, the chart shows the same measure going back to 1969, the earliest date the data is available. The trend is clear: Real disposable income has been growing at a slower and slower rate over time.

Economists talk about growth in terms of GDP or income. These factors are important, but they don't tell me anything about the average family.

(Source: Federal Reserve)

That chart shows why so many of us feel poorer than ever. Real disposable income growth is too slow to be meaningful for too many families.

When real disposable income grew at more than 3% a year in the early 1970s, families could double their standard of living about once every 24 years, or twice during a typical career. At the lower rate of about 2%, standards of living took about 36 years to double.

Now, average families need to work about 70 years to double their standard of living. At this pace, many Americans won’t see a real change in their lifestyle during their entire working career.

That explains the feeling of malaise in the country, a problem Reagan was addressing with his question. He was countering Carter’s 1979 “crisis of confidence” speech, which could describe the America of 2017:

I want to talk to you right now about a fundamental threat to American democracy. … The threat is nearly invisible in ordinary ways. It is a crisis of confidence. It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our nation.

This became known as the “malaise” speech even though Carter never used that word. In 2017, we know malaise is likely to prevail until real disposable income growth tops 2%.

Regards,

Michael Carr, CMT
Editor, Peak Velocity Trader

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  • sasquatch1313

    Good article although the author is confusing currency debasement and inflation. The difference is critical. The dollar has been a fiat currency since 1971 and as with all fiat currencies its value has been diminished (intentionally) though unrestrained printing. Nice trick, as they can steal the value of your currency right out of the bank without actually even taking the physical money out. How much since 1971? About 95 cents out of ever dollar so far. Other than that, the article is a bull’s eye.

  • jringo55

    Over the last 8 years, it’s been said that inflation is low. Low for who? For everyone? I don’t think so. Inflation is calculated with some very crafty figures. Truth is, inflation exempts a number of costs the masses are stuck paying for. My water bill alone has tripled in cost. Electric bills have never decreased. Car insurance never decreases. Taxes are starting to rise for home owners. Health Care cheaper — NO WAY. But wages are still flat and they are stuck 15 years back in time. The FED says things are improving but I can assure you, the improvement is only for the people who are getting wage increases. I’m retired and on a fixed income. Anytime one of my monthly bills go up even 5 dollars a month in costs —THAT’S INFLATION. So what does this mean for the masses stuck in the rut like I am? — We are not going to be the thriving consumers your employer hopes for to keep you in your wage increases. Like it or not more than half of America is in stagflation and has been for quite a while. Main Street is the engine that drives the economy. The FED has been targeting the WRONG engine. If you have never heard of helicopter money — you probably need to look it up. The path we are on if not changed very soon will lead us to it. Some nations are already doing it.

  • jringo55

    Currency devaluation is just another crafty part of inflation that most people are just unaware of.

  • sasquatch1313

    First let me preface this statement with one bit of info. Gold prices are being suppressed world wide via collusion of governments and international banks. Consider that for every ounce of gold that exists, there are now over 800 ounces of paper gold (certificates) issued and sold. So if you have gold certificates with guarantees of deposit in some repository, good luck on redeeming them. However, even at the falsely suppressed current price, an ounce of gold will buy you as much wheat today as it did a century ago. This means NO inflation. It is currency debasement. Your rising bills are due to falling dollar value. Think about it. In the 1960’s, a family man working in a factory provided for his family, owned a house, etc. After the debasement began, soon mom had to go to work. By the ’90’s they had to borrow and use credit to maintain their lifestyle. And now that’s not even enough. Inflation is cyclical. Debasement is progressive and unidirectional. They have systematically lowered your income and stolen your savings. What’s worse, since the dollar served as a global reserve currency, they have stolen from the entire world. It is the biggest heist in history. Finally, a fact to ponder. In 1971, gold was $38 an ounce, it is now over $1200. That means the dollar has lost 97% of its value and “they” are quibbling over how much to tax the remaining 3 cents. The average American is working for poverty wages and their net worth (if any) is a few sticks of furniture and the clothes on their backs. We have become Land of the Fee, Home of the Slave. Nuff said…

  • Hal Galbraith

    Isn’t it interesting that the downward cycles directly correlate to lulls in the mining industry. It’s been said that while Mining is only 2 to 3% of the GDP, another 92 to 95% rely upon the industrial minerals and metals from this small sector of the GDP. Too bad our previous administration was determined to kill mining in this country.

  • jringo55

    Seriously? — Mining is not the first industry that was destroyed by BOTH parties. Ever heard of textiles, electronics, forging, steel, manufacturing? Psst, these have all been gutted. All things have their day and then they fizzle out. Mining is not the saving grace of America but it’s more a part of the bigger picture of systematically dismantling America. Never forget that America is just a nation in the midst of other nations in a (world) market.

  • Hal Galbraith

    jringo55, I couldn’t agree more with your reply. I have been in mining for nearly 36 years and the first time I, along with hundreds of thousands of others, was laid of was due to the Obama administrations’ war on releasing environmental permits. I guess the environmentalists don’t wear cloths (textiles), use manufactured goods (forging and steel), and electronics. No one realizes it takes 27 minerals to connect a cell phone call to your loved one – nor do most people care. If it were not for the basic industries as you listed above, the comfortable lives that we all (including those most against the basic industries) enjoy on a daily basis. Keep on commenting. Eventually, or perhaps in a perfect world, people will begin to see how the entire infrastructure of goods relies upon one another.

  • jringo55

    I worked 30 years in manufacturing. I struggled every step of the way to my retirement. My fist layoff was 1 year after being employed. I was laid off at least 5 times, maybe more. Two of these layoffs were 2.5 years each. The (myth) is we were cared for during a lay off. Being laid off from you employer is not a positive unless you are cheating the system. I don’t cheat. I lost big because labor is there for their gain. When there is no gain, labor (will) be sacrificed. The responsibility of any corporation is to manage the business. Not mismanage it to the point lives are negatively affected. What is lacking within most business are these: Morals, honor, ethics, integrity, justice, loyalty, understanding, compassion and mercy. Business operates on one single thought –> GREED toward those at the top and the investor’s. Relentlessly they insist for more profits. They become ruthless and shallow in thought. One thing I have come to know about people who lust for GREED. They can never be satisfied. More than enough is never enough. More and more is what they live for. Sacrificing others below them is something that never comes to mind. When they cut jobs to keep profits flowing, they don’t look at names. It’s just numbers to them. GREED doesn’t have a moral conscience.

  • Hal Galbraith

    Too bad you don’t live near Reno. I’m sure we could have great discussions over a beer and some nachos. It sounds like life has kicked yours and my butts fairly equally.

  • jringo55

    Oh that’s not all. My pension is totally fixed till I die. To bad my bills are not fixed. Unlike govt who borrows to pay their bills and never pays their debts, I’m expected to live within my means to pay, keep downsizing my way life till I’m forced to live in govt. housing and have the masses say I’m a leech. Yes indeed, I was once a thriving working class tax payer and a consumer and now I’m a leech because my income is fixed forever. If govt would get out of my wallet, I could afford to live on my own. But the forward plan is just like always. The new admin can’t wait to spend more money that we don’t have on (their) desires which will be added to the national debt that never gets paid. It’s not only dumb to add more debts but it’s even dumber to give tax breaks to the corporations and rich people when we are already running revenue negative. But I digress, the corporation’s and the rich folks are in dire straights. –> Eye roll here. You can’t beat dumb out of people with a stick and math is far removed from Washington because math sense is simply taboo in Washington. Math sense would cause restraint. Trust me, restraint in spending (our) tax dollars is furthest thing from their mind.